Home Depot Down 20% Over The Last One Month, Will It Continue To Underperform?

by Trefis Team
Home Depot
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Home Depot‘s (NYSE: HD) stock could grow at a reasonable rate but potentially underperform the broader S&P index post coronavirus and oil price war crisis, going by the trends seen during the 2008 slowdown. Home Depot’s stock declined from about $229 on March 6th to $185 as of yesterday, March 24th, a 19% drop (vs. an 18% decline in the S&P 500 during the same period). The World Health Organization (WHO) had declared a global health emergency at the end of January, in light of the coronavirus spread. Home Depot stock has also lost 18% from its $228 closing price on Friday, Jan 31st, to March 24th (vs. about 27% decline in the S&P 500). Drawing lessons from the 2008 financial crisis, we see HD stock declined from levels of around $24 in October 2007 (the pre-crisis peak) to levels of around $16 in March 2009 (as the markets bottomed out). Implying HD stock lost as much as 34% from its approximate pre-crisis peak. This marked a much lower drop than the broader S&P, which fell by as much as 51%. However, Home Depot stock recovered post the 2008 crisis, to levels of about $23 in early 2010, rising by 43% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Home Depot’s Stock Recover Similarly From the Coronavirus Spread?

We compare the performance of Home Depot’s vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Home Depot’s Stock Fare Compared With S&P 500?

Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.

Consumers under lockdown-style conditions could likely forego home-improvement projects and focus on buying necessities such as food and medicine, as many are already doing. In fact, home improvement and housing go hand in hand with the overall economic conditions which seem to be struggling due to the Covid-19 pandemic.

If signs of coronavirus containment aren’t clear by the May Q1 earnings timeframe, it’s likely Home Depot’s stock, along with the broader market, is going to see a continued drop when results confirm palpable reality.

What about timing?

Potential for Home Depot stock to bounce from its March 24th $185 price, back near $220 levels seen pre-Coronavirus crisis, for a 20% return, and its timing, hinge on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Home Depot’s peers – competitor Walmart. The complete set of coronavirus impact and timing analyses is available here.

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